Second Bowen takeover bid opens old wounds

A second takeover bid in little over a year for Queensland coalminer
Bowen Energy
has aggravated old grievances between minority shareholders and its suitor, Indian steel maker Bhushan Steel.

After thwarting efforts last year by India’s fourth biggest steel maker to gain full ownership of the Bowen Basin explorer, shareholders of the $8 million company are set for another battle when the new bid opens on Thursday.

It comes as large Indian steel makers join the rush of Chinese, Japanese, Korean and Thai firms to secure large, cheap, long-term supplies of Australian resources.

But the battle for Bowen has highlighted tensions between end users of this nation’s resources and investors wanting to ride the wave of booming resource prices to push up the value of the shares.

Adani Enterprises has made the biggest move with a $3 billion purchase of non-core coal tenements in Queensland from Linc Energy, while earlier this year New Delhi-based Jindal Steel & Power failed in a bid for Rocklands Richfield – coincidentally the same company Bowen was pursuing in 2007. Following its initial bid last year Bhushan was left stranded with 58.8 per cent of Bowen.

But online share trading forums lit up again last month when Bhushan announced on September 22 its plans to make a bid at 10¢ a share for the rest of Bowen, a price 4¢ below the 2009 offer.

Minority shareholders have been complaining to the Australian Securities Exchange, the Takeovers Panel and the Australian Securities and Investments Commission about Bhushan since 2007, when it took a 15 per cent stake in Bowen in exchange for first right of refusal to develop its tenements.

After September 2007, when Bowen’s chairman, Frank Farrall, resigned, minority shareholders complained to the Takeovers Panel that Bhushan had been given the chance to secure 40 per cent of the board seats and 90 per cent of all Bowen projects without any reference to them.

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On September 21, 2007 Mr Farrall told the panel there had been “unacceptable circumstances’’ because the memorandum of understanding and funding agreements that handed Bhushan.a joint venture interest in some Bowen tenements had not been referred to shareholders for approval.

Hostilities have been further fanned by a preference for spending on the joint venture assets over Bowen’s other interests and the slow progress in defining a bankable resource in Queensland’s premium coal region,

Despite having multiple drill rigs on site since 2008, Bowen is yet to define a resource complying with the joint ore reserves committee.

In 2008 an Indian press report cited Bhushan executives boasting of Bowen’s potential to produce more than 1 billion tonnes of coal and, while Bhushan issued a statement to the Australian Securities Exchange denying that figure, it retains a link to the story on its website.

According to Bowen’s annual report released last week, the company recorded a loss of $11.2 million, more than double the previous year’s figure.

It spent no money on evaluation or exploration but booked $9.03 million of impairment losses on exploration and evaluation assets.

It also borrowed $2.5 million from Bhushan, which took its total debt to $5.04 million and, with the exploration write-offs, was enough to give it a deficiency of net assets of $2.6 million.

One shareholder, Geoff Le Serve, lodged a complaint with the ASX last week detailing a series of what he said were misleading statements in the annual report that warranted suspending the stock from trade.

Last year the shareholders forced Bhushan to seek a new independent expert report after the Takeovers Panel found fault with the original.

But what has frustrated shareholders most is the lack of any further action by regulators.

When last year the Takeovers Panel made a declaration of unacceptable circumstances and final orders on the application by then minority shareholder Macrae Holdings, it left open the possibility of more action.

The declaration stated that the panel was still making inquiries in relation to an association between Bhushan and a mysterious Mauritius-based company called Savni Holding, which controlled 16 per cent of Bowen.

Shareholders have alleged that Bhushan controlled Savni and used that holding, with its own, to take control of Bowen.

The panel stated it would pursue “the answers to these and further questions but others may have better powers and resources to pursue these issues". The panel appears to have given away the chase, but Alastair Macrae, who initiated the Takeovers Panel application with supporting submissions from ASIC, has not given up.

“The shareholders that didn’t sell into last year’s bid are still waiting for ASIC to rule on open issues that were left to them for investigation by the Takeovers Panel, specifically in regards to whether Bhushan is associated with the other major shareholder, Savni Holding," Mr Macrae said last week.

“If that is the case, the first takeover bid [launched in July last year] was illegally conceived."

The panel said there was insufficient evidence to establish an association between the companies, noting that Savni had not sold into the original takeover bid “which might have been expected of an associate warehousing shares ahead of a bid’’. Two months after the bid closed, Savni sold down its shareholding to 9.6 per cent.

Last week Bowen attempted to allay some investor concerns about the board’s ability to act in the interests of all shareholders through the takeover.

Four of the six Bowen Energy directors are also directors of Bhushan, including managing director Nitin Johari – who is also financial director of Bhushan – Anil Ahuja, Neeraj Singal and Brij Bhushan Singal,, while Bowen’s company secretary, Glenn Merchant, is also the company secretary and a director of Bhushan Steel.

Bowen has set up a committee of the two remaining directors, exploration comprising executive director Mark Sheppard and non-executive chairman Neil Stuart to assess the bid in conjunction with unnamed advisers.

Bowen directors did not return calls from The Australian Financial Review.

Shareholders have been advised to take no action until independent directors have considered the bidder’s statement and an independent expert’s report.

Indian newspaper reports also show Bhushan Steel has been under investigation for tax evasion while failing to develop coal blocks awarded to them within time frames stipulated in Indian mining agreements.

Bowen has failed to announce a JORC compliant resource for coal tenements that it has had up to five exploration drill rigs on for more than two years as Bhushan progressively increased its holding in Bowen Energy.

In comparison, junior privately-owned coal company Carabella, which began exploration drilling with a single drill rig on Thursday, is expecting to announce a JORC compliant resource in just three months, ahead of an initial public offering.

As early as July 4, 2008 the company announced it had five rigs operating on coal tenements located next to lucrative coal assets owned by major producing coal miners.

BHP Billiton’s Norwich Park coal mine, 20 kilometres from the company’s East Middlemount project, has a production capacity of 5.5 million tonnes of coking coal annually.

Ten kilometres from East Middlemount, Anglocal and Mitsui’s Capcoal mines produce 8.5 million tonnes of coking coal a year.

Five million tonnes of coking coal at current prices of more than $US200 a tonne is worth more than $US1 billion on the lucrative export market.